Capital Markets Summer 2022: Revealing Recession Patterns
Revealing Recession Patterns
Recessions may be the most feared events in economics and investing, but the most effective way to deal with them is to have a game plan. In this presentation, we deconstruct and analyze past recessions to reveal repeating economic and capital market patterns. We also identify areas of investment that may be less impacted by recessions and may be able to grow through them. Our strategy for dealing with economic volatility is to invest in these kinds of companies that can control their financial destiny. Companies with solid balance sheets that gain market share can expand even as their end markets shrink. If we believe company fundamentals such as earnings and cash flow will grow through a recession, we can potentially mitigate the risk of valuation compression. While this is a risk to be sure, it is likely limited and quantifiable, unlike say an economically sensitive company that may see earnings decline to levels that make debt service or repayment difficult. Such a scenario may result in permanent loss of capital in a recession. Quality growth companies, on the other hand, are more likely to emerge from a recession stronger, with better competitive positions. While we can't be sure when the next recession will occur, we have experience in managing through economic volatility. We have invested through eight recessions since our founding in 1964. Our firm has flourished despite these trying times, and we are confident that we will continue to do so, through both recession and expansion.
Daniel C. Chung, CFA Chief Executive Officer Chief Investment Officer
Brad Neuman, CFA Senior Vice President Director of Market Strategy
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